Open for Business: Spain Exits Recession

Open For Business: Spain Exits Recession

Open for Business: Spain Exits Recession

It’s official: Spain has left its two-year recession behind, and the government’s bet on exports to pull the country out of the doldrums has proved to be right on the money.

The Spanish economy grew 0.1 per cent in the third quarter from the second, the Bank of Spain said last Wednesday, marking the first expansion in nine quarters. A dynamic exports sector and a dip in the country’s high number of unemployed were behind this long-awaited change of fortune.

Spain’s exports have been a rare bright spot for the country, struggling to recover from a 2008 property crash that pushed the jobless rate to over 27 per cent earlier this year, saddled banks with a pile of bad loans, and swelled public debt.

The economy has shrunk by 7.5 per cent since the beginning of 2008. Over the same period, the export sector has grown by 14.6 per cent, and it is now worth over a third of total output, compared to about a fifth five years ago.

So, should Spain be taking the champagne off ice after its central bank’s encouraging data?

TOP INVESTORS DIP TOES BACK IN SPAIN

The Spanish government has boasted the recession would end soon due to reforms and tough austerity measures. It says these have helped lower the country’s risk premium for foreign investors.

These are early days yet, but various factors have converged to set the Eurozone’s fourth biggest economy on the road to a meaningful recovery:

• The overhaul of Spain’s banking sector is well under way, fuelling hopes that the credit tap will soon be turned back on.
• Property prices are bottoming out – largely due to the asset disposals managed by Spain’s “bad bank” Sareb.
• The summer tourism season has been a bumper one, creating jobs in the third quarter.

Top international investors have returned to Spain, focusing on M&A opportunities in the hospitality, banking, property and energy sectors. The icing on the cake came last week when news broke that Microsoft co-founder Bill Gates has bought a 6 per cent stake in top builder FCC.

CONSUMER SPENDING KEY TO SUSTAINED GROWTH

Spain’s exports are expected to continue to outperform, riding on the back of solid growth figures from European neighbours like Germany, France and the UK. The increased competitiveness of Spanish industries due to lower labour costs will also enhance the exports sector.

Foreign direct investment is also likely to remain buoyant as the government’s reforms makes Spain more attractive.

But the country cannot rely on external factors to sustain economic growth. A revival in private investment and consumer spending is needed to ensure a lasting recovery.

For more information on Spain’s economy, contact corporate law firm Argali Abogados.

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